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Interview: Carbon-based mechanisms are here to stay

Dr. Ram Babu is the Chief Executive Officer at General Carbon and has participated in setting up many of the systems and processes of the Clean Development Mechanismand has also led some of the early transactions in the compliance and voluntary markets. R. P. Sharma is a Director at General Carbon and has over 35 years of experience in the field of energy and environmental management.

What are some of the kind of projects that you have been working on in General Carbon?

RP Sharma: We provide solutions from concept to cash. After identifying the issues, we develop the project, help companies get financing from outside and even facilitate technology transfer. We are also in the trading business from our Singapore office. We do trade and buy credits ourselves, which no other Indian consulting firm is doing. In a way we are an Indian MNC. We have more than 250 buyers online, and we already know and deal with them. We have the privileged knowledge of what the buyers needs are and don’t just blindly go on the best offer, and here we are different from other consultants.

What is the status of CDM in India so far – in terms of the number and kind of projects?

RP Sharma: The number of projects is quite adequate. Previously companies would just go for the low hanging fruits. But now, some serious and creative projects have started as well. Newer CDM project ideas need to be explored in areas of renewable energy and improving process efficiencies in industries.. If you look at the industry sector, there are companies which are very efficient and compete well withrespect to any global benchmark. But on the other hand, there are a large number of companies which are extremely inefficient – we need to bridge this gap. A large section of the industry has high energy consumption rate – like pulp and paper, cement, steel etc. Unfortunately CDM on energy efficiency front is not very prominent. Most of the time it becomes a business case decision. But nowadays, a lot of the technology is not as expensive as it used to be. Still in a lot of instances, in the private sector, businesses just want to continue as long as they can without changing to more energy efficient process. One of the reasons is probably the low cost of energy in India.

Which sectors in India are most active in CDM projects?

RP Sharma: The metallurgical sector, cement, paper and off-late the power sector have been pretty active in the CDM space. Thanks to MoEF’s insistence on clean technology, the new power plants have been integrating new technology from the get go –this in turn has increased the capacity of such plants. However, the small and medium sector (SME) still needs a boost on this front. The SME sector accounts for about 45% of manufacturing output and 40% of the exports, and is immensely energy intensive., and as such has significant potential for improvement.

What do you think of voluntary carbon trading?

Ram Babu: There is a commitment to mitigate climate change by reducing GHG emissions, andmany corporates seem to be committed towards this. This has almost become a unitary parameter to measure corporate responsibility across the globe – let’s call it Global Corporate Responsibility.

But right when the momentum was picking up, the recession hit, which has created a setback. Also, there was an expectation somewhere that credits from voluntary carbon will become a part of the mechanism in the U.S., which did not happen either. However, we can definitely see that the voluntary actions by a corporation in the absence of an international agreement or in the interim of agreement negotiations will help keep the voluntary market momentum going. However in the long term, the growth of this market and the future prospects arestill unclear.

RP Sharma: I still feel that the voluntary market will exist majorly due to CSR issues. Corporates are gradually realizing that they need to bring down their carbon footprint. And voluntary initiatives, even though all of them may not fetch carbon revenue, will not cease to exist.

Ram Babu: The report did identify some very good opportunities that India can go for and decrease its carbon emissions as it ‘committed’ post Copenhagen. The report has highlighted key industry sectors with a high potential for energy efficiency interventions. It also mentions the need for improving efficiency of the production systems in the agricultural sector for making the sector more carbon efficient. The report is more technology oriented, it doesn’t discuss very much about how markets and private investments can benefit this industry immensely.

What do you see will be the status of CDM post 2012? Without an international agreement like that of Kyoto Protocol, will countries still engage in the carbon market with as much momentum?

RP Sharma: The future of carbon is uncertain. People are talking a lot about new mechanisms and continuing the CDM framework; but there is no concrete action. It seems the concept will still remain though a change in name /nomenclature is quite likely. The 21st century belongs to energy. And when I say energy, the focus is on energy intensity. If you reduce the energy intensity, it is going to reduce the carbon emissions – and the incentive in this whole process is trading of carbon credits. India already has indigenous mechanisms like RECs and PAT. These mechanisms are there to attract investors, or even to push the inefficient businesses to act. I can’t say for certain if CDM will remain after 2012, but international and domestic mechanisms similar to it will be there to facilitate the market.

The global awareness is already widespread – if a country doesn’t participate, they won’t be talked about. Everyone has realized that climate change is going to bring disastrous consequences. So for the human race to survive, every country has to have a plan, which means that the businesses have to participate as well. Hence, I doubt that an absence of international agreement will affect the momentum.

What are your thoughts on COP 17?

Ram Babu: In comparison to Copenhagen and Cancun, this COP will definitely be very interesting. There are a lot of hopes about this COP discussing a lot of market and even financial mechanisms – such as specifics of mobilization of finance up to $100 billion a year in the long term and $30 billion a year in the short term, how to achieve and measure these goals and also the source of this finance. From Bangkok interim negotiations to Durban, I don’t see any new market mechanisms being formalized. I personally see more REDD + and similar mechanisms materializing from COP 17 discussions. Only a climate oriented approach will lose investors trust and interest. Market based and financial mechanisms need to materialize at the COP 17 discussions to keep the market active.

This interview has been conducted by Pramita Sen from the India Carbon Outlook editorial team.

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